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2016/9 Discount in the Income Taxes of the Personnel Employed By Turkish Companies Rendering Services Abroad
4.10.2016

A new Income Tax Communiqué (Nr.293) has been enacted and announced in the Official Gazette dated 2 October 2016. The recent amendments provide the opportunity for discount in individual income taxes of the personnel employed by the Turkish companies rendering services abroad. This legislative change will be effective as of 1 January 2017.

Abstract

The recent legislative development proposes a significant amendment in the current Income Tax Law particularly in relation to the reducing the burden of the employee taxes of the resident companies rendering outbound services. The requested revision can be considered as a positive sign for Turkish Governments' intention to support and increase the country's potential in the outbound service industry.

The Income Tax Communiqué proposes incentives in employee taxes of the resident companies mainly involved in outbound service provisions. According to the recent legislative change, resident companies fulfilling the pre-requisite conditions will be entitled to have a discount in the payroll taxes of the employees.​

The recent development will provide opportunity to reduce the burden of employee taxes of the resident companies of which 85% of the annual revenue is composed of the services rendered abroad.

In order to be eligible to benefit from this incentive, Turkish companies shall fulfill the requirements below:​

  • The Turkish company has to maintain its operations in the fields of architecture, engineering, design, software, medical reporting, bookkeeping, call center, certification, data storage, data processing, data analysis

  • 85% of the annual revenue has to be composed of services rendered abroad

  • Invoices (or similar documents) shall be issued on the name of non-resident customer (individual or corporation)

The services shall be provided for non-resident individuals or companies of which legal or business seats are located out of Turkey and the recipients shall utilize these services abroad

 ​It should be noted that the recent regulation will become effective as of 1 January 2017. In this respect, the companies may be entitled to utilize this incentive upon fulfilling above-listed pre-requisite conditions in 2017 and submission of the annual income/withholding tax returns in March/April 2018 at earliest. It needs to be ensured that the pre-requisite conditions shall continue to be fulfilled in the following periods.

Companies eligible to benefit from this incentive are required to fill the specific notification form and submit it to tax offices along with the withholding tax returns for the respective periods.
 
The maximum amount that can be deducted from the corresponding income tax liabilities of the employees of Turkish companies fulfilling required conditions would be calculated through multiplication of the percentage of the first income tax bracket (currently 15%) and income tax base of the subsistence wage (TRY 1,399.95 in 2016). Under the assumption that if such incentive were already became effective as of 2016, the cap deduction amount would be limited to (1,399.95 x 15%) TRY 209.99. Under the assumption that Ministry of Finance announces incremental increases in the subsistence wage amounts at the beginning of each fiscal year, it is expected that the cap amount for this incentive will increase accordingly in year 2018 when Turkish taxpayers will be able to enjoy the relief.